DreamWorks (DWA) in Acquisition Talks with Hasbro

Shares of DreamWorks Animation SKG Inc. (DWA) were trading up +4.76 or +21.28 percent to $27.13 per share in Thursday's premarket, after news that the company was in early talks with Hasbro Inc. (HAS) for the toymaker to take over the animation studio. DreamWorks stock closed at $22.37, up +0.34 or +1.54 percent in Wednesday's regular trading session.

Universal City, California based DreamWorks Animation is a film production company originally founded in 1994 by Steven Spielberg, David Geffen and Jeffrey Katzenberg.

The company, spun off of DreamWorks studio in 2004, focuses on the production and development of films, video games and television programming. DreamWorks Animation is responsible for ten films which have grossed over $100 million apiece. The company is best known for producing Shrek and Shrek II. The company's latest releases include Mr. Peabody and Sherman, which has grossed $273 million worldwide, and How to Train Your Dragon 2, grossing $611 million worldwide.

Pawtucket, Rhode Island based Hasbro Inc. - originally named Hassenfeld Brothers - is one of the largest toymaker and board game companies in the world. The company's best known products include brands such as Parker Brothers, Milton Bradley and Playskool, with board games, Monopoly, Scrabble and Trivial Pursuit to name only a few. In addition, the company manufactures G.I. Joe and Transformers action figures which have been made into successful movie franchises.

The new merger talks come six weeks after DreamWorks was reportedly talking to Japanese conglomerate Softbank on a potential takeover. While the talks between Hasbro and DreamWorks are still in early stages, there is still a possibility that any potential deal could still fall through.

Sources close to the matter say that Hasbro is considering paying for the company with a combination of stock and cash. Nevertheless, a price for the company has not been mentioned, however, Jeffrey Katzenburg, DreamWork's Chief Executive Officer is said to be looking for at least $30 per share and would potentially continue to run DreamWorks.

In a related matter, DreamWorks is in the process of another potential deal with Hearst Publishing. The company is considering a sale of 25 percent of AwsomenessTV, an Internet video program that appeals to young girls and has over 100 million subscribers.

The deal is worth $81.25 million and would directly give DreamWorks $56.25 million, while allocating $25 million for an investment into AwsomenessTV. DreamWorks bought the company in May of 2013 for $33 million with an option to pay an additional $120 million if certain criteria were met. The deal would value AwsomenessTV at $300 million, more than double what DreamWorks paid for the company.

The potential deal between Hasbro and DreamWorks would make Hasbro the only toy company to actually own a movie studio. This could have enormous potential in successfully marketing toys through movies made by the merged company.

While the deal has still not been officially announced, some analysts are expecting DreamWorks stock to fetch as much as $35 per share. Also, if former potential suitor Softbank made a competing bid, a battle for the company could ensue and drive DreamWorks share price even higher.

Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.